10 year pension plan

poochops

Hi everyone, complete newb here, but I’ve been reading and digesting for a while now and I think I at least know which questions i’d  like to ask your help on if you don’t mind?

Background.

I’m 52 my wife is 47, both rounded up.

We have a 53k mortgage with no other debts outside regular bills. Half the mortgage at 2.6%  ends in 5 years with a 10% cap on overpayment,  and the rest at 1.5% ends in 11 with no cap. Current mortgage payment £672pcm

I pay higher rate tax, my wife pays standard. 

 

My wife has a 28k pot in The People’s Pension and between her and her employer currently contributes £200pcm

I have £68k in my employers scheme with Ageon and between me and my employer currently contribute £900 pcm. 

I’ve got a closed final salary pension which will pay £15.5k pa at 65, and is linked to inflation or something like. We have £70k in cash which we saved for years in case we became unemployed and wanted to pay the mortgage off, and now realise this might not have been the best strategy. The 70k includes our rainy day fund however I have 3 months notice period and 23 years service so if I was made redundant I’d get something like 25k possibly more. 

We would like to work towards a combined income of circa 35k in today’s money when we plan to retire when I’m 62, obviously optimising both of our personal tax allowances. If I could afford to retire earlier I would. 

In the medium term 2-5 yrs we want to keep £30k readily available for our 2 daughters assistance but would like this to beat inflation if possible.

We’ve budgeted holidays and a reasonable standard of living and done our sums and presently have a combined monthly surplus of c£2500 pcm to save on top of our existing contributions. We’d still be saving c£250 pcm in cash for treats etc

So up to 10 years left to save! My questions are 

How much to save into my wife’s pension with 20% tax relief to max her personal tax allowance on drawdown?

How much to save in my pension with 40% tax relief, given my final salary pension will bust my personal tax allowance? My pension contribution is salary sacrifice if that helps.

Whether to hold another investment alongside our pensions such as a s&s ISA or other. 

Whether to drop money onto the 11y mortgage portion to realign the maturity dates to 5y or to overpay for the same goal.  I’d really enjoy this comfort tbh as Im always uncertain about my job..

How to invest the balance of our 70k savings over the 10 years, pension or other?

Is the peoples pension the best solution for my wife or should we do something else alongside?

And finally! Given all of the above should I consult an IFA for final clarity? How much would I expect to pay for a one off consultation. I want to sort this before Christmas or sooner.

Thanks so much for reading. 

 

Dazed_and_C0nfused

My wife has a 28k pot in The People’s Pension and between her and her employer currently contributes £200pcm

I have £68k in my employers scheme with Ageon and between me and my employer currently contribute £900 pcm. 

I’ve got a closed final salary pension which will pay £15.5k pa at 65, and is linked to inflation or something like. 

We would like to work towards a combined income of circa 35k in today’s money when we plan to retire when I’m 62, obviously optimising both of our personal tax allowances. If I could afford to retire earlier I would. 

Assuming you will both get the full new State Pension of £9.1k then from you are already  only £1,300 short of that from age 68.

So you primarily need your DC funds to provide £35k/year for 3 years (£105k) plus £19.5k for a further 3 years (£58.5k) and then £1.3k on an ongoing basis.

So providing you're happy to empty the DC funds down to the point that (ideally your wife) can take £1.3k/year then you might need in the region of £200k.

Your wife should get to £52k in 10 years and you £176k so if you emptied yours and used the minimum necessary from your wife's pot she would have £64.5k to generate the £1.3k/year you need from the DC fund.

Slight issue with all of that is that the income is disproportionately allocated to you and your wife may have spare Personal Allowance (even after allowing for her applying for Marriage Allowance) so any increase would be best off in her name from a tax perspective.  But you would benefit most financially from increasing your employer's contributions (salary sacrifice means you don't actually contribute anything to the pension, it is all your employer's contributions which is why there is no pension tax relief with salary sacrifice).

Bemma

How much 40% tax head room do you have for pension contributions?

Does your employer give you any of their 13.8% employer NI savings into your pension?

You have 2 children, do you receive child benefit or pay Higher Income Child Benefit Charge (HICBC - effectively 18% additional tax with 2x children for £50k-£60k)?

 

SS into pension is worth at least an uplift of 72% (40% tax, 2% NI = 1/(1-0.4-0.02).  You have £2500pcm extra to save.  That's equivalent £4300.00 pcm extra gross into your pension through SS - if you have the 40% tax headroom.  That'll blow the £40k annual allowance, so carry forward required or don’t do it all and put some in your wife's pension (does her pension use SS?)

 

If the other factors (HICBC and employer NI) come into play - the pension just gets even better.  The perfect storm/benefit being:  40% tax, 12% NI, 18% HICBC, 13.8% employer NI = (1/(1-0.4-0.12-0.18))* 1.138 = 3.7933 an uplift of 279%

ffacoffipawb

Bemma said:

How much 40% tax head room do you have for pension contributions?

Does your employer give you any of their 13.8% employer NI savings into your pension?

You have 2 children, do you receive child benefit or pay Higher Income Child Benefit Charge (HICBC - effectively 18% additional tax with 2x children for £50k-£60k)?

 

SS into pension is worth at least an uplift of 72% (40% tax, 2% NI = 1/(1-0.4-0.02).  You have £2500pcm extra to save.  That's equivalent £4300.00 pcm extra gross into your pension through SS - if you have the 40% tax headroom.  That'll blow the £40k annual allowance, so carry forward required or don’t do it all and put some in your wife's pension (does her pension use SS?)

 

If the other factors (HICBC and employer NI) come into play - the pension just gets even better.  The perfect storm/benefit being:  40% tax, 12% NI, 18% HICBC, 13.8% employer NI = (1/(1-0.4-0.12-0.18))* 1.138 = 3.7933 an uplift of 279%

NI should be 2% not 12% in the last scenario I think?

Albermarle

Good advice above from Bemma . Higher rate tax relief via salary sacrifice is a bit of a no brainer.
The amount will depend on how much HRT you pay . You can only claim back the HRT you are actually paying . 
And finally! Given all of the above should I consult an IFA for final clarity? How much would I expect to pay for a one off consultation. I want to sort this before Christmas or sooner.
This subject - IFA vs DIY is debated regularly at length on this forum . Here are links to two of the latest ones 
https://forums.moneysavingexpert.com/discussion/6199995/pensions-is-an-ifa-really-worth-it/p1
https://forums.moneysavingexpert.com/discussion/6200161/early-retirement-planning-ifa-fa/p1
Normally it seems to be more difficult to get a one off consultation . They prefer to manage your investments ongoing for a % fee , although I think most clients prefer that as well . If you did get a one off it would maybe cost a minimum of £2K , probably more. 

Bemma

It's possible to pay 40% tax and 12% NI if you have uneven pay.  An extreme case (as an example) would be being paid £50k in April and then only £1k in every other month of the year.  As tax is based on yearly income, you would pay 40% tax on the £1k each month, but NI is per pay period, so you would pay 12% NI on the £1k each month as it's below the 2% NI threshold.
It doesn't have to be that extreme, I get a bonus in April, this results in me paying 40% tax and 12% NI (and 18% HICBC) on some of my pay.
(Edit:  Actually, I don't pay all that tax, NI and HICBC.  I SS below £50k so it all goes in my pension instead, at very little net cost to me.)

cloud_dog

Just as a comment, for clarity, you should not sacrifice 'additional' monies in a bonus month, and to sacrifice as much as you can in as few months as possible (so as to maximise the monies benefiting from the 12% NI).

Dox

poochops said:

And finally! Given all of the above should I consult an IFA for final clarity? How much would I expect to pay for a one off consultation. I want to sort this before Christmas or sooner.

 

Is it really sensible to leave your financial future in the hands of random strangers on a free forum, who are basing their comments on minimal knowledge of your circumstances? Sure, they might be able to make helpful observations and correct any misunderstandings, but inadequate information will severely limit the usefulness of what is said; and it could plain be wrong, had other factors been known.

Ring round a few IFAs and get some quotes for a one-off consultation. Good ones will offer a short free initial 'meeting' to assess if they believe they can help/that you need their assistance. Don't expect detailed advice - just a few general comments indicating the areas where they think they can add value.

poochops

I just logged on for a quick look during lunch, thanks for your replies so far. to answer a few queries that might help...

Yes we will both qualify for the full state pension, I do already my wife needs 6 more years 

My contribution presently is 8% £420 per month. Employer makes the balance 9%. So if I understand the q correctly I have £15560 headroom at 40%. ( My pay includes a healthy car allowance so pension contributions aren't on the full amount)

My employer doesn't give me back any of their NI saving, but infer its been factored as part of their contribution.

We don't receive child benefit, they're 24 and 26 years old.

My wife's pension isn't SS as far as I know but will check.

Dox - noted, thanks. It was always my plan once I'd got my thoughts lined up with the help here.

Terron

I’ve got a closed final salary pension which will pay £15.5k pa at 65, and is linked to inflation or something like.

How "like"? The small print can make a big difference.

I had a final salary pension that I thought was index linked. It was until it started paying out. Rises after the pension is in payment are "entirely at the discretion of the trustees". After two takeovers the latest trustees have stopped giving rises.

My other DB (but not FS) pension gives rises in line with inflation capped at 5%.

Yours may well be better, but it might be  worth checking.

Albermarle

correctly I have £15560 headroom at 40%. ( My pay includes a healthy car allowance so pension contributions aren't on the full amount)

As you have not mentioned your actual salary it is not possible to agree or disagree with this figure,